1QFY21 CNP of RM340m came within at 23% of our/street estimate while DPS of 4.0 sen is below our expectation. As Maxis’ unlimited prepaid and entry-level postpaid plans continue to gain traction, subs continue to grow but ARPUs continue declining. Enterprise and FTTH remain key growth drivers. Lower FY21E/FY22E CNP by 5%/3% to RM1.4b/ RM1.5b, and DPS from 18.0 sen/19.0 sen to 16.0 sen/18.0 sen, yielding 3.4%/3.8%. Maintain MP and DCF-TP of RM4.90.

1QFY21 within. 1QFY21 CNP of RM340m came within our/consensus' FY21 expectations at 23% each. DPS of 4.0 sen came below our FY21E DPS of 18.0 sen due to prudent cash management. Management remains cautiously optimistic going into FY21.

YoY, 1QFY21 CNP fell 6% on the back of a 5% decline in revenue which was mainly caused by 28% drop in device revenue, which we attribute to 1QFY20 higher base as physical sales channels were mostly unaffected by Covid-19 lockdowns. Postpaid revenue fell 2% as ARPU fell 5%, despite a 4% rise in new subs. The ARPU dilution is mainly due to a slew of new entry-level postpaid plans (including Maxis') last year. Prepaid revenue fell 3% as the 3% drop in ARPU outweighed the 3% rise in prepaid subs. Similarly, Maxis' new Hotlink unlimited prepaid plans added subs while diluting ARPU. Despite the 5% drop in revenue, core EBITDA rose 1% on the back of OPEX savings (19% of revenue vs. 22%). Higher net interest expense and tax rate (26% vs. 25%) dragged PBT down by 5% and CNP fell accordingly by 6%.

QoQ, CNP rose 1% on a 1.5% revenue decline. Enterprise (-12%) and device (-8%) revenues dragged mainly due to imposition of MCO 2.0 in January 2021. Postpaid and prepaid revenue stayed flat. Postpaid ARPU fell 1% while subs rose 1%. Prepaid ARPU fell 3% while subs rose 2%. FTTH (+6%) and network (+33%) revenues helped to lift total revenue. Core EBITDA rose 3% on lower device and maintenance costs. Weighed by a higher net interest and tax expense, CNP only rose 1%.

Moving forward. Having expected industry consolidation for some years, Maxis continues to focus on its convergence strategy by growing its enterprise and FTTH segments. It has hired new staff in its enterprise segment and guided that future M&As would be enterprise- focused. In our view, this strategy allows Maxis to: (i) differentiate itself from MNOs and MVNOs which would sell access to Malaysia's only 5G network, and (ii) offset further ARPU declines in the event of further price wars from a leaner Celcom Digi Berhad and MVNOs. In the near future, we foresee further postpaid and prepaid ARPU declines.

Post results, we lower FY21E/FY22E CNP marginally by 5%/3% to RM1.4b/RM1.5b on weaker ARPU assumptions, as its recent plans continue to be ARPU-dilutive. We lower FY21E/FY22E DPS from 18.0 sen/19.0 sen to 16.0 sen/18.0 sen (FY20: 16.0 sen + 1.0 sen special DPS). Any special DPS in FY21 would be a positive surprise.

Maintain MARKET PERFORM and DCF-driven TP of RM4.90. We maintain our DCF assumptions (WACC: 8.8%, TG: 1.5%). Our TP implies EV/Fwd. EBITDA of 12.6x, equivalent to -0.5SD of its 5-year mean. FY21E DPS of 16.0 sen yields 3.4%, above the industry mean of 2.4%.

Risks to our call include: (i) higher/lower-than-expected service revenue growth, (ii) lower/higher-than-expected OPEX, and (iii) less/more aggressive competition.

Source: Kenanga Research - 26 Apr 2021